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Stock-based Compensation | 3 Months Ended
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Oct. 27, 2024
Share-Based Payment Arrangement [Abstract] |
Stock-based Compensation | Stock-based Compensation We provide compensation benefits by issuing stock options, unrestricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareholder return (TSR) performance restricted stock units and free cash flow (FCF) performance restricted stock units). In 2025, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS performance restricted stock units. We last issued stock options and FCF performance restricted stock units in 2019. In connection with the Sovos Brands acquisition, in the third quarter of 2024, we issued 1.721 million time-lapse restricted stock units (Replacement units) in exchange for certain Sovos Brands restricted stock units and performance restricted stock units. The Replacement units are subject to the same terms and conditions of the original Sovos Brands restricted stock units and performance restricted stock units. Certain Replacement units were subject to accelerated vesting. The Replacement units had a total fair value of $74 million based on the quoted price of our stock on the acquisition date. The portion of Replacement units attributed to pre-combination service was $42 million, which was accounted for as part of consideration transferred and was recorded in Additional Paid-in Capital in our Consolidated Statements of Equity in the third quarter of 2024. See Note 3 for additional information. The portion of the Replacement units attributable to post-combination service will be recognized as stock-based compensation expense over the remaining vesting period. In determining stock-based compensation expense, we estimate forfeitures expected to occur. Total pre-tax stock-based compensation expense and tax-related benefits recognized in the Consolidated Statements of Earnings were as follows:
| Three Months Ended |  |
(Millions) | October 27, 2024 |  | October 29, 2023 |  |  |  |
Total pre-tax stock-based compensation expense | $ | 19 |  |  | $ | 17 |  |  |  |  |
Tax-related benefits | $ | 6 |  |  | $ | 2 |  |  |  |  |
The following table summarizes stock option activity:
| Options |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Life |  | Aggregate Intrinsic Value
| (In thousands) |  |  |  | (In years) |  | (Millions)
Outstanding at July 28, 2024 | 779 |  |  | $ | 45.33 |  |  |  |  |
Granted | — |  |  | $ | — |  |  |  |  |
Exercised | — |  |  | $ | — |  |  |  |  |
Terminated | — |  |  | $ | — |  |  |  |  |
Outstanding at October 27, 2024 | 779 |  |  | $ | 45.33 |  |  | 2.9 |  | $ | 4 |
Exercisable at October 27, 2024 | 779 |  |  | $ | 45.33 |  |  | 2.9 |  | $ | 4 |
No options were exercised during the three-month period ended October 29, 2023. We measured the fair value of stock options using the Black-Scholes option pricing model. We expensed stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expensed on an accelerated basis. As of January 2022, compensation related to stock options was fully expensed. The following table summarizes time-lapse restricted stock units and EPS performance restricted stock units activity:
| Units |  | Weighted-Average Grant-Date Fair Value
| (In thousands) |  |
Nonvested at July 28, 2024 | 3,300 |  |  | $ | 43.24 |
Granted | 1,366 |  |  | $ | 48.36 |
Vested | (1,190) |  |  | $ | 42.68 |
Forfeited | (42) |  |  | $ | 43.34 |
Nonvested at October 27, 2024 | 3,434 |  |  | $ | 45.47 |
We determine the fair value of time-lapse restricted stock units based on the quoted price of our stock at the date of grant. We expense time-lapse restricted stock units on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants and certain Replacement units, which we expense on an accelerated basis. Since 2022, we have granted EPS performance restricted stock units that will be earned upon the achievement of our adjusted EPS compound annual growth rate goal, measured over a three-year period. The actual number of EPS performance restricted stock units issued at the vesting date could range from 0% to 200% of the initial grant depending on actual performance achieved. The fair value of EPS performance restricted stock units is based upon the quoted price of our stock at the date of grant. We expense EPS performance restricted stock units on a straight-line basis over the service period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. We estimate expense based on the number of awards expected to vest. In the first quarter of 2025, recipients of EPS performance restricted stock units earned 100% of the initial grants based upon actual performance achieved during a three-year period ended July 28, 2024. There were 946 thousand EPS performance target grants outstanding at October 27, 2024, with a weighted-average grant-date fair value of $45.39. In connection with the divestiture of our Pop Secret popcorn business, in the first quarter of 2025, our adjusted EPS compound annual growth rate goals for the EPS performance restricted stock units granted in 2024 and 2023 were revised to equitably adjust for the impact of the completed divestiture that was not contemplated at the time of approval of the original targets. As of October 27, 2024, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS performance restricted stock units was $98 million, which will be amortized over the weighted-average remaining service period of 1.9 years. The fair value of restricted stock units vested during the three-month periods ended October 27, 2024, and October 29, 2023, was $59 million and $30 million, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the three-month period ended October 29, 2023 was $41.09. The following table summarizes TSR performance restricted stock units activity:
| Units |  | Weighted-Average Grant-Date Fair Value
| (In thousands) |  |
Nonvested at July 28, 2024 | 873 |  |  | $ | 47.40 |
Granted | 549 |  |  | $ | 47.33 |
Vested | (464) |  |  | $ | 45.52 |
Forfeited | (12) |  |  | $ | 47.40 |
Nonvested at October 27, 2024 | 946 |  |  | $ | 48.28 |
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation. Assumptions used in the Monte Carlo simulation were as follows:
| 2025 |  | 2024
Risk-free interest rate | 3.52% |  | 4.84%
Expected dividend yield | 3.01% |  | 3.54%
Expected volatility | 22.46% |  | 22.16%
Expected term | 3 years |  | 3 years
We recognize compensation expense on a straight-line basis over the service period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of October 27, 2024, total remaining unearned compensation related to TSR performance restricted stock units was $23 million, which will be amortized over the weighted-average remaining service period of 1.9 years. In the first quarter of 2025, recipients of TSR performance restricted stock units earned 175% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 26, 2024. As a result, approximately 199 thousand additional shares were awarded. In the first quarter of 2024, recipients of TSR performance restricted stock units earned 75% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 28, 2023. The fair value of TSR performance restricted stock units vested during the three-month periods ended October 27, 2024, and October 29, 2023, was $23 million and $12 million, respectively. The grant-date fair value of the TSR performance restricted stock units granted during the three-month period ended October 29, 2023, was $44.18.

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